Hong Kong, China -- (SBWIRE) -- 02/25/2013 -- "A small business owner walks into a bank and asks for a loan…" It's perhaps not the most promising opening line for a joke, but for countless Small to Medium Sized Enterprises (SMEs) in Hong Kong, access to funding is no laughing matter. SMEs are often described as the "lifeblood" of our economy, and it's easy to see why: Hong Kong's 300,000 SMEs account for 98% of all businesses, 48% of the total workforce, and 60% of private sector revenue.

Despite their vital role, SMEs struggle more than any type of borrower to obtain the funding they need to grow their businesses, and banks in general have been strict on SME lending with cumbersome requirements and low approval rate. Why exactly is this? What other funding sources are available to SMEs?

Why is it so difficult for SMEs to borrow from banks?

Mr Simon Zoen, co-founder and managing director of GMF and a retail banker of more than 15 years' experience, explained: "Banks see SMEs as high risk borrowers due to their smaller size, fewer years in business, or imperfect credit history, and sometimes perhaps certain SMEs operate in a sector to which banks simply refuse to lend."

"SME lending is also an expensive business. As the loan processing costs do not change much with the size of the loan, banks therefore prefer to give a single large loan, rather than several smaller ones. Besides, SMEs generally provide no collateral as security against loans. Banks must therefore allocate more capital against SME loans, compared to say home loans, which are secured by a mortgage charge on the underlying property," Mr Zoen said.

So what other sources of funding are available to Hong Kong SMEs?

"Not many, unfortunately," Mr Zoen said. "Personal loans, overdrafts and credit cards make very limited contribution to SME funding. Although the Hong Kong Government has introduced measures to boost SME lending, such as the 'SME Financing Guarantee Scheme' where the Hong Kong Mortgage Corporation guarantees up to 80% of SME loans by participating banks, the application requirements and underwriting criteria are quite stringent, making only a marginal impact to boost bank lending to SMEs."

In view of the SME market needs, particularly from those smaller-sized companies that need quick, short-term cash flow to capture business opportunities or support operation, one innovative non-bank funding product, Merchant Cash advance (MCA) was introduced to Hong Kong in 2009 to provide funding to businesses that accept credit card payments from their customers – typically retail shops, restaurants and bars, but available to any card-accepting merchants. MCA is a first-of-its-kind funding tool in Hong Kong that helps a business to unlock the value within an asset – the merchant's future credit card receivable, instead of a current trade receivable or selling of an existing invoice.

The MCA business has actually emerged since 1990s, and is already well-established in countries such as the United States, Canada and the UK. Unlike traditional bank loans, MCA is a 'sale of receivable' transaction, and the 'receivable' is the merchant's future credit card receivable. The business sells a fixed amount of its future card sales ("Purchase Amount") to the MCA provider at a discount, in return for cash today. Then, through their card processing bank, a fixed portion of their daily card sales is deducted and paid to the MCA provider until the full Purchase Amount is settled. As the merchant's credit card sales go up and down, so does the amount collected by the MCA provider. This makes MCA extremely flexible and completely aligned to the success of the merchant's business, as there is no regular, fixed payments that can cripple a business during low seasons. It's simple, automatic, and hassle-free, leaving the merchants with more time to focus on running their business.

Mr Zoen said, "MCA aims at providing SMEs quick funding with simple application and fast approval turnaround to capitalize on unexpected opportunities, support business expansion, rent a new premise, stock up for peak seasons, or renovate existing shops, all of which ultimately help the businesses to sustain and advance in the long run."

MCA is set to become a much-needed mainstream funding product for SMEs in Hong Kong, just as it has been for nearly 20 years in countries like the UK, US, Canada, and Australia.

About GMF Limited
GMF Limited, a leading funding solutions provider in Asia, is the first Merchant Cash Advance (MCA) provider in the Asia-Pacific region, providing immediate funding of up to HK$10,000,000 to retailers that accept credit card payments in exchange for their future credit card sales. GMF was incorporated in Hong Kong in 2008. GMF has further expanded its business to Singapore and Taiwan in 2009 and 2010 respectively. Boasting a staff of over 100 professionals and multiple product offerings in these three markets, GMF has supported thousands of businesses across Asia by helping fund their businesses and fuel their growth.